Hedge Funds Hurt by Seoul’s Too-Good-to-Fail Bonds
Convertibles intended to foster a new tech startup culture instead created a moral hazard.
Seoul needs a hedge against moral hazard in nurturing new tech stars.
Photographer: Giles Clarke/Getty
In its desperation to create more tech stars, South Korea’s government bears some of the blame for spreading moral hazard in the nascent local hedge-fund industry.
Lime Asset Management Co., the country’s biggest hedge fund, has frozen $710 million in withdrawals and come under regulatory investigation while struggling to meet redemptions in a dangerously too-good-to-fail form of convertible bonds aimed at boosting tech startups. The government encouraged Lime and other funds to load up with such instruments, but they have found it extremely difficult to exit when a surge of investors have tried to pull out their money.